Page 122 - Special Topic Session (STS) - Volume 4

STS570 Mary Everett et al.
The remainder of the article is organised as follows. In the next section, we
discuss several important measurement issues associated with the way in
which the activities of global firms are recorded under current national
accounting rules. Next, we investigate how some of those issues manifest
themselves in the data. We conclude by drawing lessons from the above
issues.

2. Methodology: National accounts and global firms - measurement
issues
As multinational firms, with their complex corporate structures, distribute
their activities across traditional borders, they complicate the task of capturing
economic activity within traditional national accounts (Tissot (2016)). A
growing body of evidence suggests that the activities of global firms have
6
outgrown some features of the existing national accounting framework.
It is now well understood that net concepts such as the current account do
not adequately reveal the underlying linkages across countries, which are likely
to reflect gross flows to and from different national sectors. As a consequence
of their growing size and complexity, gross capital flows increasingly affect the
current account through their impact on primary income. That is why it is
necessary to analyse the composition of both gross and net flows, by
functional component and sector, even within the confines of the existing
residence-based accounting framework (Lane (2013)).
In the context of international banking flows, this has already been well
documented in the existing literature. For example, several authors have
argued that current account balances did not reveal underlying vulnerabilities
created by European banks’ large-scale reinvestment of funds raised from US
money market funds into US mortgage-backed securities before the 2007–09
Great Financial Crisis (GFC).
7
In this section, we provide three hypothetical examples to illustrate some
consequences of globalisation. We start with the “classical” measurement
issues associated with global firms, illustrating how offshoring affects national
accounts. Second, we highlight additional conceptual and measurement
challenges associated with the redomiciling of global firms – that is, the
change of legal domicile of a firm to another location. Third, we describe issues
raised by the cross-border mobility of corporate assets, in particular intangible
assets such as intellectual property. While we provide three separate examples
for simplicity, these phenomena can interact in practice, further complicating
the interpretation of balance of payments data.

6 Lane (2015, 2017), Forbes et al (2017), Guvenen et al (2017).
7 Obstfeld (2012), Borio and Disyatat (2011), Lane (2013), Shin (2012).
111 | I S I W S C 2 0 1 9